Assume a corporation is not required to pay AMT in the current year but will pay AMT next year. Also assume the corporation's regular marginal tax rate is 35%. Which tax planning strategy would minimize its after-tax cost of a charitable contribution it is considering paying to a qualified charity?
A) The after-tax cost of the contribution will be the same no matter which year it makes the contribution.
B) Pay the contribution this year.
C) Wait until next year to pay the contribution.
D) None of the choices are correct.

Question

Quizplus · Accepted Answer

If the corporation pays the contribution this year, it will receive a tax deduction at the higher tax rate of 35% and minimize its current year taxes. If it waits until next year, it will receive the same tax deduction at a lower tax rate due to the AMT, which will increase its after-tax cost of the contribution. Therefore, paying the contribution this year will minimize its after-tax cost.

Assume a Corporation Is Not Required to Pay AMT in the Current